Big Picture, Market Pulse Help Investors Stay On Top

Whether you consider yourself savvy or a novice investor, reading The Big Picture and the accompanying Market Pulse table every day is a good idea.

Why? The Big Picture offers much more than a simple roundup of each day's stock market action. Relying on facts rather than forecasts or opinions, the daily column aims to put the major indexes' moves in context with the overall market.

By facts, we mean high, low and closing numbers for the major indexes, volume changes and historical precedent. Market timing is crucial for potential success in investing. Studies have shown that three of four stocks tend to follow the market's trend.

How To Time The Market

Buying stocks when the market is in a correction raises the risk of a loss. It's like swimming against the tide — it's harder to reach your target than if you're going in the same direction.

To that end, The Big Picture (today on B2) helps stock pickers navigate the waters by alerting readers to the current market environment.

The column focuses on the tech-heavy Nasdaq composite and the benchmark S&P 500 index. The Dow Jones industrial index and small-cap S&P 600 index are occasionally highlighted as well.

Generally, when the indexes are rising in heavy volume, that's a bullish sign. If they start to make little upward progress in still-robust trade, they could be signaling that action is stalling, a possible red flag. And when the major averages sell off in fast turnover, it's called a distribution day.

Too many distribution days can add up to an eventual market correction — loosely defined as a drop of 3% to 5% or more from the indexes' recent high. A correction can become a full-scale bear market. Thus, buying stocks during a correction is like fighting against the aforementioned tide.

The Big Picture provides detailed analysis of such events as they occur. The accompanying Market Pulse table gives a snapshot of the current state of the market. Readers of the Big Picture column were able to identify sell signals at the March 2000 market top and the end of 2007.

With a quick glance, you can see what the market outlook is. There are three possibilities: market in confirmed uptrend, uptrend under pressure and market in correction.

The three outlooks function similarly to a traffic light. Green, for confirmed uptrend, signals an ideal environment for buying stocks. Yellow, for uptrend under pressure, indicates that the market is slowing down and serves as a warning to proceed with caution. Red, for correction, suggests that investors should halt new buys until the outlook improves.

The Market Pulse also highlights leading stocks that are moving up or down in volume. These are some of the names that investors should watch, such as those that appear in the IBD 50, Big Cap 20 and other features. They can provide fodder for watch lists.

But even if a stock shows up in the Big Picture, Market Pulse or other columns, that doesn't mean that it's an automatic go. Always conduct your own due diligence and study a stock's charts before making any buy or sell decisions.

Today's column kicks off a series of articles to help readers master market timing. Upcoming columns will showcase the follow-through concept and how to spot distribution days.

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About Investor's Business Daily

Investor’s Business Daily provides exclusive stock lists, investing data, stock market research, education and the latest financial and business news to help investors make more money in the stock market. All of IBD’s products and features are based on the CAN SLIM® Investing System developed by IBD’s Founder William J. O’Neil, who identified the seven common characteristics that winning stocks display before making huge price gains. Each letter of CAN SLIM represents one of those traits.

Select market data is provided by Interactive Data Corp. Real Time Services. Price and Volume data is delayed 20 minutes unless otherwise noted, is believed accurate but is not warranted or guaranteed by Interactive Data Corp. Real Time Services and is subject to Interactive Data Corp. Real Time Services terms. All times are Eastern United States. *Reflects real-time index prices.